Extra budget to factor in cash to pay for Anglo Leasing contracts

The government is preparing a second supplementary budget through which it intends to factor in money to pay two Anglo Leasing contracts after losing cases in Europe.

The National Treasury Secretary Henry Rotich on Thursday told the Nation that the country has no choice but to settle the fees since all litigation efforts against the controversial contracts have failed.

“We need to understand that this is a court ruling and there is no more room for appeal. It only makes sense for us to pay for the contracts because we shall have to do it ultimately. It is important we uphold Kenya’s standing as a law abiding country,” Mr Rotich said on phone.

OPENED DISCUSSIONS

Budget committee chairman and Gachoka MP Mutava Musyimi said the Treasury has opened discussions with parliament on the need to support the government’s recommendations.

“The discussion about the Anglo Leasing contracts came up during the meeting and it was considered a challenge we have to deal with.

‘‘That information now rests with the State Law Office and the officials at the Treasury but we accept that these are genuine concerns that need to be dealt with,” said Mr Musyimi.

While the final word on the way forward will come from the Attorney General’s office –the government’s principal legal advisor - Mr Rotich said the Treasury’s recommendation is that the country offsets the debt once and for all.

“Refusing to pay only taints the country’s image and damages our credit risk profile. We cannot afford to overlook this at a time we are preparing to take to international markets with our sovereign bond,” the minister said.

The move follows threats by the two companies to attach the funds to be raised through the planned Eurobond.

The principal sum for the two contracts with Universal Satspace Company and First Mercantile Securities Corporation, is Sh1.58 billion ($17 million) but the figure is likely to rise once the interests accrued are compounded.

On December 20 last year, the government lost a suit against Universal Satspace Company in London and was ordered to pay $7.87 million - $7.6 million being the principal sum and $274, 431 interest accrued on that figure as of the date the ruling was made. The court gave the state up to 4pm January 17 to have cleared the amount with interest accruing at a daily rate of $1,665.

Kenya had lost a similar case against First Mercantile Securities Corporation in Geneva on December 6 the previous year where the Swiss court ordered it to pay the company a sum of $10.6 million and an interest of Sh126,000 ($1,400) per day.

Mr Rotich said various attempts to appeal against the rulings have failed leaving the tax payer with no choice but to foot the bills.

Universal Satspace was contracted to provide the government, through the Postal Corporation of Kenya (PCK), bandwidth spectrum and network operation and control services for a period of 10 years.

First Mercantile Corporation was to provide financing for the purchase of some satellite telecommunications equipment for PCK from Spacenet, an American company.  

Anglo Leasing remains one of the country’s biggest corruption scandals and has cost tax payers billions of shillings paying in goods and services that were incompletely or never delivered.

The matter has already been discussed by the Budget and Finance Committees in parliament and allocations are expected to be part of the second supplementary budget set be brought to the house soon. 

"We have met with both committees and presented them with the facts and our recommendations. There is a general consensus that we have to pay up our dues, not because it is what we want but because it is an order from the court,” said Mr Rotich.

However, only two of the total 18 contracts in the Anglo Leasing scandal are to be paid, according to the Treasury Cabinet secretary.

ERODE COUNTRY'S IMAGE

“We are only paying the two contracts that we were ordered to pay by the London and Swiss courts last year, not all the 18 contracts as has been perceived by sections of the public” said Mr Rotich.

There have been fears that failure to pay the debts will erode the country’s attractiveness to international investors when it floats its first international sovereign bond in coming months.

“Already, some of our embassies abroad have been attached and this does not paint a good picture for our country,” he said.